USPS countersues Northrop Grumman for contract overruns

Friday - 11/2/2012, 8:25pm EDT

Nearly six months ago, Northrop Grumman filed a $179 million lawsuit against the U.S. Postal Service, alleging the agency delayed and disrupted its work on a multimillion-dollar contract to create and install high-tech mail sorters.

Now, USPS has countered those claims, alleging the company actually owes it millions of dollars because the contract ran over schedule, according to documents obtained by Federal News Radio.

The lawsuits, filed in the U.S. Court of Federal Claims, stem from a $874 million firm fixed-price contract awarded to Northrop Grumman in 2007 to modernize the Postal Service's Flat Sequencing Systems (FSS). The contract called for Northrop Grumman to create a machine-driven system for sorting flat mail, such as large envelopes and magazines.

Northrop: USPS interference led to delays

Northrop was to deliver all the machines by Oct. 30, 2010, contingent on successfully passing tests of the systems, according to the original contract. But Northrop didn't finish deploying all of the machines until August 2011, according to the court filings.

However, Northrop has said the delays were caused by USPS essentially interfering with its performance of the contract.

After the contract was signed, USPS "improperly wrested design control" from the company, ignored performance specifications the contract had been based on and "pervasively imposed extra-contractual design requirements," Northrop alleged in its May 4 court filing.

Rather than a fixed-price contract, the agency treated it as a "full-scale development, 'build-to-suit' contract," the company said.

When it came time to deliver the machines, USPS ordered extra rounds of testing that pushed the contract further behind schedule, the company said. Finally, in July 2010, just months before the original deadline, USPS increased the number of locations at which the machines would be deployed, from 32 to 47 sites.

USPS stopped paying Northrop in early 2011, according to the company, leaving about $64.4 million in unpaid invoices.

Northrop is seeking $179 million in damages.

USPS: Northrop responsible for delay

In its Oct. 31 filing, USPS denied most of the company's claims.

The agency said the delays in delivering the sorting machines led to hundreds of millions of dollars in lost revenue, as the agency had to continue to rely on manual hand-sorting.

USPS said Northrop was solely responsible for the the failure to meet the delivery deadline.

In 2010, both parties agreed to modify the contract to extend the deadline for delivering the machines to July 2011. But the modification specified that Northrop would be on the hook for any damages to USPS caused by the delay.

The agency said it incurred $393.7 million in damages because the company failed to deliver the machines on time.

Federal News Radio has requested comment from both Northrop Grumman and the Postal Service.